Market
Wrap: 13/02/2017 (19:00)
Looking at the chart, Nifty Fut (Feb @8814)
has to sustain over 8875 area for further rally towards 8925-8995 & 9035-9075
zone in the short term (under bullish case scenario).
On the other side, sustaining below 8855
zone, NF may fall towards 8795-8735 & 8690-8645 area in the near term
(under bear case scenario).
Nifty
Fut (Feb) today closed around 8814 (+5 points), almost flat after making an
opening session high of 8846 and day low of 8765.50. Indian market today opened
in a positive tone (+35 points) following upbeat global cues amid renewed
optimism of “Trumponomics” as promised by Trump last week to deliver a “phenomenal”
tax reform plan for US.
Also, weekend meeting between Abe & Trump was
passed more or less “peacefully” without any major controversy. Although, Trump
reiterated his commitments about devaluation of USD, market is quite relieved
that Trump did not engage any face to face duel with Abe for the trade balance
& FX issues. Abe, in turn also advised Trump to engage his fiancé ministers/secretaries
to talk the currency, rather than himself directly all the times.
Thus,
relatively softer stance towards its trade partners & other nations by
Trump after the initial storm of his twitter handle has made the investors
somewhat relieved from the recent “Trump Fatigue” and it appears that the “Trumpflation”
trade is again resumed. USD/US bond yields are also getting some bids.
But
going forward, there will be lots of uncertainties about “Trump Tantrum”, especially
for his trade protection, border/import tax, “America First” & “Made In
America” rhetoric. Besides China, Japan, South Korea & Vietnam, India is
also in the tip five countries list that run significant trade deficits with US.
India exports its IT services, pharmaceutical products, textiles and gems &
jewelries to US in a significant volume and has around $65 bln trade as of now
from $29 bln in 2005. Indian IT sector is quite vulnerable to Trump’s whims
& fancies and his stance of immigration block & H1B visa process modifications;
notably, when asked about this H1B visa issues last week, US authority has
clarified that “nothing off the table” despite India’s best lobbying effort to
block it.
Japan
today reported slightly tepid and below estimated GDP, which may also
undermined its recent economic recovery boosted by currency devaluation &
exports and thus BOJ is expected to continue its present QQE without any
tapering (positive for Japanese EQ). But, more than BOJ, USDJPY is now hanging
on the Fed & Trump (US politic rather than economics). Realizing that a
stronger USD may not be good for US economy, Trump is now desperately trying to
talk down the USD and considering the overall mixed US economic data, tepid
wage growth, uncertainty about “Trumponomics”, Yellen may take a dovish stance
in tomorrow’s testimony and March’17 rate hike probability may be further
plummeted. A weak USD may be good for Indian economy & the market and
vice-versa.
Today
EU authority also downgraded its forecast for EU area GDP and upped the
inflation target by some extent amid uncertainties of Brexit, various EU
political risks, “Trump Tantrum” and an weak EUR (helpful for inflation).
Indian
market today, although opened in a positive tone following upbeat global cues,
could not sustain the gap up and soon fall under some selling pressure. One of
the reasons may be tepid IIP data for Dec’16 published on Friday after market
hours, which may be indicating some adverse effects of demonetization. Also
lackluster sets of Q3 numbers & NPL from the country’s top two PSBS (SBI
& BOB) may have failed to impress the market about the core issue of prompt
resolution of the stressed assets. As par the managements, it may take some
more quarters for an uptick about resolution (actual recovery) of the NPL/NPA
amid various uncertainties & delays after demonetization. NF sold off
initially, but respected the 10-DEMA, placed around 8755 and subsequently
covered some shorts as global cues were positive and also there were no fresh
triggers ahead of CPI today.
Also,
a report by Moody’s about some stress in CV & PV finance (auto sector) as a
fall out of demonetization may have also dented the market sentiment today.
PSBS were under significant pressure today after recent run up amid mixed Q3
numbers so far; on the other side, private banks were under demand today after
recent underperformance with their public peers. There was some buzz about
Indradhanush-2 for PSBS recapitalization efforts by the Govt, which is so far
may be too little & too late. Although, RBI is continously stressing upon
the adequate recapitalization of the PSBS, Govt may not be so keen to put more
tax payer’s money to bail out them at this point of time in the absence of
tepid credit off take, poor private investments, and lower capacity utilization
and above all, no significant resolution of the huge stressed assets with the
PSBS. Almost, 12-15% of the gross advances by the PSBS may be stressed now and
most of these are legacy issues and for infra projects having long gestation
period.
Private
sector banking space may also be buzzed with some consolidation talks between
Axis & Kotak Banks. Recently, Kotak Bank was served notice again by the RBI
to reduce the present 34% promoter holdings in the Bank to 20% in a phased
manner and thus Kotak may be exploiting some merger probabilities with Axis to
avoid open market selling of its stake. Also, Govt may soon sale its stake
(SUUTI) for the Axis Bank and thus this merger may be more on the cross holdings
synergies between two entities and not for any significant operational
synergies. Indusind Bank may be also exploiting to buy Bharat Finance to expand
its micro finance portfolio for further growth and may be also another contender
for Kotak Bank merger as it’s a known player in inorganic expansion.
Although,
IT counters including Infy today gave some support to the market, the ongoing boardroom
battle in the public domain may not be good for the company (Infy) and also for
the overall Indian market, as investors may be quite nervous for “war of words”
between founders & professional CEOS amid differences over work culture
& governance issues. The real issues may be founder’s ego & sentiment,
which may unnerve the angel investors, especially after the Tata Sons fiasco
and this time, if Sikka quits/exits abruptly like Mistry, the effect may be of
more disastrous. The main issue in this instance Infy case is a huge severance package
(Rs.17 cr !!) paid to a former CFO and an whistle blower’s complain about it,
that the same may be a “hush money”. Another issue may be of Sikka’s
compensation package itself, which is huge & unjustified as par the
founders, who are traditionally against a market based rate of higher
compensation and more inclined towards ESOPS. But, ultimately it’s a fact that
like Mistry, Sikka was also able to turn around Infy from deep recession and is
able to fill the previous huge valuation gap with TCS.
After
market hours today, India flashed its Jan’17 CPI as 3.17% against estimate of
3.22% (prior: 3.41%). Although, the headline CPI may be still tepid because of
demonetization led adverse effect on the demand & supply chain for
perishable food products, the core inflation was printed as 5.01% against 4.9% recorded
for Dec’16. The upwards trajectory of the core inflation may be the prime
concern for an inflation hawk Patel/RBI MPC and may not be good for the EQ
market as it basically reinforced the RBI stance of being neutral rather than
accommodative. Thus, any rate cut hopes in FY-18 may be further diminished and
rate cut cycle by RBI may be also over, at least till FY-18, considering
various other limitations like transmission, NPA, recapitalization issues of
the banks as pointed out by the RBI. A hawkish RBI in FY-18 may be good for
Indian bond yields and for the angel investors (FPIS), which in turn may also
support the EQ market inflow (stronger & stable INR).
Apart
from global cures & USDINR equation, Indian market may be also affected by
the ongoing state polls, especially for the UP, Q4FY17 earnings, macro data, and
implementation of GST in H2FY18 (?) & probable adverse effect of El-Nino on the
monsoon this year.
SGX-NF
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